Coinbase was able to enjoy some breathing room after Ripple achieved a partial victory in court last week, but analysts warn it isn't out of the woods yet when it comes to its own battle with regulators.
In a recent report by Berenberg Capital Markets, analysts at the broker-dealer cautioned that Coinbase is still facing significant regulatory pressure that could derail its stock rally. Only a day after the ruling, Coinbase announced that it was suspending its staking service in four states — California, New Jersey, South Carolina, and Wisconsin — amid allegations that the service constituted a securities offering. The company said it disagreed with the notion, but initiated the freeze to let legal proceedings play out.
Staking is a process where users validate crypto transactions by pledging their own tokens to the process and receiving a financial return depending on how much they staked.
This suspension should "serve as a reminder to investors" that Coinbase is "far from being in the clear" when it comes to regulators despite the Ripple ruling, said the Berenberg analysts.
Coinbase Restricts Ethereum, Solana Staking in Four US States
America's largest crypto exchange Coinbase today said in a statement that it stands by staking and that it will fight the service in court—but would stop staking for new customers in California, New Jersey, South Carolina, and Wisconsin. In a Friday statement, the San Francisco-based digital asset company that "Americans in every state deserve access to the same technology and economic opportunities as people everywhere," and therefore it would push back against certain states requiring a stakin...
Last Thursday, federal judge Analisa Torres ruled that Ripple's sale of its XRP token was not a security offering, except in the case of sales to other institutions. The industry rallied at the news, and many immediately saw it as a boon to Coinbase.
Following the ruling, Coinbase’s share price rose 25%, riding sentiments that the outcome boosted its own case against the Securities and Exchange Commission, which filed a lawsuit against it on June 6.
In its own case against the SEC, the agency accuses Coinbase of operating an unregistered securities exchange, and for selling unregistered securities through its staking service called Coinbase Earn.
Judge Rules Ripple Sales of XRP Were Not Securities—Except to Institutions
The federal judge presiding over Ripple Lab's case against the Securities and Exchange Commission has ruled that the XRP token "is not necessarily a security on its face"—except when it was sold to raise funds from institutions. Federal district judge Analisa Torres ruled that programmatic sales to public buyers and distributions of XRP to Ripple Labs employees did not constitute the sale of unregistered securities. The court did not address secondary market sales of XRP on cryptocurrency exchan...
Coinbase has repeatedly argued that staking products are not being sold as securities offerings, but Berenberg warned that this service was "particularly vulnerable" to being deemed as such. The analysts themselves wrote that they believe Coinbase Earn is "effectively a securitized product", basing this view on outside legal assessments.
They also pointed to an admission by a lawyer for Coinbase at a pre-trial hearing last week in the case that there are “no losses” to those involved in staking, which would undercut the SEC's contention that the service put investors at risk of losses. However, the analysts note that Coinbase itself repeatedly acknowledged risks involved with staking that could lead to losses.
Coinbase did not immediately return Decrypt’s request for comment on this position.
SEC Sues Coinbase Over Staking Services, Failing to Register
A day after cracking down on Binance, the SEC is now taking aim at Coinbase. The Commission alleges in a new lawsuit that the crypto exchange failed to register as an exchange, clearing house, and broker despite providing investors these services. The SEC also alleges that Coinbase offered and sold unregistered securities via its staking service. The agency also claims that Coinbase "made available for trading crypto assets that are being offered and sold as investment contracts, and thus as sec...
Others were also unconvinced that the ruling was a major win for Coinbase. Jeffrey Blockinger, the chief legal counsel at the decentralized exchange Vertex Protocol, said that Torres' ruling did not address questions around whether XRP counted as debt or equity, something he considers unlikely, and warned that the SEC is unlikely to back down in its other open cases against exchanges.
"The SEC is not going to roll over," Blockinger told Decrypt. "I think the people saying Coinbase is in the clear because exchange trades are now not securities are being short sighted."
